Car Cos. Find Frequency Middle Ground
<B> Car Cos. Find Frequency Middle Ground</B>
By Lynn Woods
For years, car rental companies have complained about the high cost of offering frequent flyer miles to their customers. Last year, after the airlines implemented a new 7.5 percent excise tax on the purchase of miles, they even threatened to withdraw from the programs entirely.
But after switching to formulas that tied the number of miles earned more closely to the actual revenue from the rental, the car rental industry seems to have made peace with customers on this contentious issue. Many have resorted to the new standard of 50 miles per day, a fraction of the former 500 miles per rental business travelers typically earned two years ago.
Because the changes were instituted industrywide, customers couldn't protest by taking their business elsewhere. And while not all the companies have yet adopted that standard for all programs, it is the ideal to which most aspire--the magic number that allows the firms to cater to the frequent traveler's mania for earning mileage without putting themselves in the hole.
With the old formula, factoring in special double or triple mile promotions, "you could get 1,500 miles for a one-day rental," said Karen Bell, executive director of partnership marketing at Dollar Rent a Car. "In a lot of instances, you'd get more miles for a three-day car rental than for a flight across the U.S."
Alamo, Avis, Budget and National have moved to 50 miles per day for many of the frequent flyer programs in which they participate. International airlines are the exception. At National, for example, members of the Canadian Airlines or LanChile program still earn 500 miles per rental. And National continues to award 250 miles in both the Northwest Airlines and US Airways programs.
Budget also has a patchwork of reward levels, although Michael Blakey, director of channel marketing and partnerships, said that as contracts are renewed, "wherever possible we're going to 50 miles per day."
Hertz, which recently joined TWA's Aviators program, is offering one mile per dollar spent in most programs. Last May, Hertz initiated the industrywide changes in mileage awards, announced its withdrawal from two programs and introduced a new loyalty program focusing on merchandise rewards instead of air tickets. But ultimately it reached the same conclusion as Dollar Rent a Car, which two years ago tried pulling out of the programs and then got back in. "We've heard pretty clearly that business customers value frequent flyer miles and prefer miles to merchandise," said Hertz staff vice president of marketing Frank Camacho.
By reducing the amount travelers can earn to 250 miles per business rental, a mile-per-dollar-spent formula or 50 miles per day, car rental companies have saved significant amounts of money. Hertz, for example, spent about $20 million on frequency programs in 1998, compared with $32 million the year before. National's frequent flyer program costs fell approximately 25 percent between 1997 and 1998, amounting to a savings of about $7 million, according to corporate vice president of marketing and advertising Bob Dimmick. And Budget's renegotiated agreements with the airlines saved it $1.7 million in 1998 over the year before.
Although car rental companies have multi-year contracts with the airlines, a few of the carriers--including Continental--agreed to tweak the reward levels in mid-contract after the car rental companies, pushed to the limit by last year's tax, appealed to them for help.
"The airlines in general realized this was a serious issue for our industry," whose businesses also had been transformed as they went public during the course of their multi-year contracts with the carriers, noted Alamo corporate sales vice president Mike Going.
One benefit of the 50-miles-per-day formula is that it represents a welcome simplification over the smorgasbord of earning levels that has existed in the past. The airlines also are moving toward nonconjunctive miles, where renters don't have to have an accompanying airline ticket, for pretty much the same reason.